Why is the fast food industry so profitable? Discuss the question and relate it with sales growth. You are also required to highlight the advantages and disadvantages of fast food.

by michaelxer (student)

University Degree Business and Administrative studies

KOLEJ LINTON

B.A (Hons) Business Studies assignment

RESEARCH AND COMMUNICATION SKILLS

A word-processed assignment submitted in partial fulfilment of requirements for Academic skills for business (SM 1007)

Prepared by:

UBS4-04/09-00096 (matrix card number)/R486374 (passport number)

School of Business & Management

Linton College

30/July/2010

Table of Contents

Acknowledgementpg.3

Summarypg.4

1. Introductionpg.5

1.1 Backgroundpg.5

1.2 Research questionpg.5

1.3 Objectivepg.5

2. Findingpg.6

2.1 Introductionpg.6

2.2 Financial statement of fast food industrypg.6-7

2.3 Advantages and disadvantages of fast foodpg.7

2.4 McDonald’s Corp.pg.8

2.5 Financial statement of McDonald’s Corp.pg.8-9

3. Conclusionpg.10

4. Recommendationpg.10

Bibliographypg.11

Acknowledgment

I would like to thank God for all His blessings. A lot of people have played a very important role in the successful completion of this report. In this section, I would like to express my appreciation for those who help me directly and indirectly in my work.

I would like to thank my friend, Mr. Robert, for the valuable advice and support he has given me in the writing of this report. I would also like to thank my teachers, Mrs. Shuba for her encouragement and guidance. Thanks also to my friend, Ms. Lawiza, for her immaculate job and her suggestions. My deepest thanks go to my fellow classmates for their understanding and support.

Summary

This study was to find the reason why fast food industry is so profitable

It was requested by School of Business & Management Linton College

It was requested on (August/2/2010).

The investigation was done by :

Student 1: UBS4-04/09-00096 (matrix card number)/R486374 (passport number)

Student 2: UBS401/09-00261 (matrix card number)/A01140422 (passport number)

Student 3: UBS4-05/09-00084 (matrix card number)/A0020833 (passport number)

The main findings were that the reason why is the fast food industry so profitable

It was concluded that fast food industry is so profitable, however have so many disadvantages in heath sector

The recommendations are that consider with their own health should be reducing their habits when it comes to eat fast food.

1. Introduction

1.1 Background
This report has been written because it was asked to present its findings in a report to be presented in partial fulfilment of requirements for Academic skills for business (SM 1007)

It was requested by School of Business & Management Linton College

It was requested on (August/2/2010).

1.2 Research Question

Why is the fast food industry so profitable? Discuss the question and relate it with sales growth. You are also required to highlight the advantages and disadvantages of fast food. You are allowed to use any fast food company as an example in your essay.

1.3 Objectives
The objectives of this report are to make an industrial analysis of the fast food industry and find the evidences that related to profit of fast food industry.

2. Finding

2.1 Introduction

Fast food is food ...

This is a preview of the whole essay

1.2 Research Question

1.3 Objectives
The objectives of this report are to make an industrial analysis of the fast food industry and find the evidences that related to profit of fast food industry.

2. Finding

2.1 Introduction

Fast food is food that could be prepared or cooked in advance and kept warm or reheated to serve customers quickly. Typically the term about fast food refers to food sold in a Restaurant or fast food outlets, like kiosks or stands which may or may not provide any chairs and shelter for customers (Costin, 2007). There are also drive-through outlets known as sit-ins and upscale kiosks (Borade, 2000-2010). The franchise operations have generated part of restaurant chains that offer standardized meals shipped to each branch restaurant from central locations.

Why is fast food industry so profitable? Fast food industry has some reason to become massively profitable, there are: fast food can be prepared easily and can be served to the low–cost delicacies meals demand of the people, fast food has created giant multinational corporations growth on international appeal promoted by niche chains. In addition, besides the advertisement from the company, fast food restaurant grows by ‘word-of-mouth’ advertsing, also fast food industry created the franchise operations system, which are part of restaurant chains that could allow the industries to maintain overall of products control, and give a guaranteed rate of return, while at the same time allowing another owners in many different locations to create a low-wage work force best suited to different conditions and locations.

2.2 Financial statement of fast food industry

According to The Food

Institute's analysis, from 1986-1989 the common food industry sales expanded at 4.1% while fast food industry sales rose at a 7.9% rate. In 1992, all growth in the commercial eating-out industry was in the fast food industry’s sector. The real sales throughout all eating and drinking place segments rose about 1.0% from 1991. However in the fast food industry sector, growth was at a 7.4% rate, representing the strongest growth since 1988(thefreelibrary.com, 2010).

According to Wikinvest (2009) analysis In 2009, one of fast food company had revenues increase at an annual rate of 4.9%, while profits increased by 14.0% and storewide sales grew by 9.0%. Revenues for the first three quarters of 2009 were $11.4 billion, down 10.1% from the first nine months of 2008. At the same time, operating income increased 1.5%

Table 2.2 gives Wikinvest (2009) comparison data on restaurant growth between one of fast food franchise company and company-owned restaurants

Table 2.2: Fast Food Franchise Company Versus Company-Owned Restaurants

(source: Wikinvest, 2009)

For five years from 2004 to 2009, franchised Restaurants number always increased. During this duration, franchised restaurants increased from 73.2% in 2004 until 80.7% in 2009, while company-owned restaurants decreased from 26.8% to 19.3%. Thus it can be said that fast food industry keeps growing over time while common restaurants keep decreasing.

2.3 Advantages and disadvantage of fast food

Since there are many fast food restaurant scattered around, it is easy to get it. It also comes in a small package easy for travelling. In addition, fast food is cheap and affordable for everyone, including those who are small earners. However there are many disadvantages of fast food industry. One of them is that people become lazy and become dependant on the convinience of fast food. In addition, fast food restaurants have high calories, sodium, and fat content. Almost all fast food contain high calory which is not good for health. This unhealthy food is accompanied by soft drinks and juices that contain lots of sugar. These combination add even more fat to one’s body and might even lead to obesity (Herlihy, 1999-2010).

2.4 McDonald’s Corp.

McDonald’s Corporation franchises and operates fast food restaurants in the food service industry. This world’s largest foodservice retailing chain serves a varied, yet limited, value-priced menu in more than 118 countries worldwide. All restaurants are operated either by the Company or by franchise with more than 390,000 employees (reuters.com, n.d.).

2.5 Financial statement of McDonald’s Corp

Financial statement is to inform about McDonald’s total revenue and sales growth from 2005 to 2009. In case there is an insufficiency of data from the case, data has also been incorporated from McDonald’s 2004 annual reports.

Revenue and total revenue for McDonald’s Operations from 2005 to 2009 have been abstracted and represented in Table 2.5. The further information data about McDonald’s stocks growth compare with another company are presented in Figure 2.5 to facilitate readers understanding of the underlying facts.

Table 2.5: McDonald’s Corp financial statement data

(source: Moneycentral, 2010)

According to Table 2.5, it informs about McDonald’s total revenue and sales growth from 2005 to 2009. The total revenue rose from 19,117.3 million dollars in 2005 to 22,744.7 million dollars in 2009. From this table, it can be said that the fast food industry will continue to grow in the future.

Figure 2.5: stock movement comparison between McDonald’s Corp-(MCD) with CoCa-Cola Company(KO)

According to Figure 2.5, it shows the stock movement comparison between the two famous world-wide companies; McDonald’s Corp-(MCD) with CoCa-Cola Company(KO) from 2003 to 2010. The McDonald’s Corporation operates in the fast food industry and The Coca-Cola Company is the owner and marketer of nonalcoholic beverage brands (Google finance, 2010). For eight years, MCD’s stock value always increased. During this duration, MCD’s profit increased by 334%, while KO’s stock value is not as good as MCD’s where it only increased by 34% of profit. Although both companies operates in food & beverage industry, McDonald’s profit is larger than Coca-cola’s. It shows that fast food industry is more profitable than the beverages industry.

3. Conclusion

In summary fast food can be defined as food that can be prepared quickly and ready-to-eat. Typically, the term fast food refers to food sold in a restaurants or outlets. Fast food is profitable in the sense that it can be prepared easily and saved money to the low-cost delicious meals demand of the people. However fast food has disadvantages and advantages. The disadvantages include making someone become lazy. In adition, fast food has high calories, sodium, and excess fat which are not good for people health. The Advantages are fast food save time for those in hurry and cut fod spending. Even so, the disadvantages outweight the advantages which make fast food a poor choice for those who seek healthy lifestyle.

4. Recommendations

In the light of these conclusions, it is recommended that people who love to eat fast food should change their habit into a healthier one. In addition, fast food could lead to obesity and other dangerous sickness such as heart attack, diabetes, stroke etc.

Bibliography

Borade, G. (2000-2010), “History of Fast Food Industry”, viewed 8 July 2010, <http://www.buzzle.com/articles/history-of-the-fast-food-industry.html>
Costin, R. (2007), “Fast food History”, viewed 8 July 2010, <http://referat.clopotel.ro/Fast_food_history-12767.html >
Finance.yahoo.com, (2010), "McDonald's Corp. (MCD): Historical Prices", viewed 20 July 2010, <http://finance.yahoo.com/q/hp?s=MCD&a=00&b=10&c=2003&d=00&e=10&f=2010&g=m>
Finance.yahoo.com, (2010), "The Coca-Cola Company (KO): Historical Prices", viewed 20 July 2010, <http://finance.yahoo.com/q/hp?s=KO&a=00&b=10&c=2003&d=06&e=10&f=2010&g=m>
Google.com/finance, (2010),"McDonald's Corporation (Public, NYSE:MCD)", viewed 20 July 2010, <http://www.google.com/finance?q=NYSE:MCD>
Google.com/finance, (2010),"The Coca-Cola Company (Public, NYSE:KO) ", viewed 20 July 2010, <http://www.google.com/finance?q=NYSE:KO>
Moneycentral, (2010), “Mcdonald’s Corp: Financial Statement ”, viewed 10 July 2010, <http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=MCD&lstStatement=Income&stmtView=Ann>
Socialistalternative.org, n.d., “The Economic of the Fast Food Industry”, viewed 8 July 2010, <http://www.socialistalternative.org/publications/fastfood/ch3.html>
Thefreelibrary.com, (2010), “Fast food operators lead restaurant industry growth, study finds”, viewed 9 July 2010, <http://www.thefreelibrary.com/Fast+food+operators+lead+restaurant+industry+growth,+study+finds-a014412483>
Wikinvest.com, (2006-2010), “McDonald’s (MCD)”, viewed 9 July 2010, <http://www.wikinvest.com/wiki/McDonald%27s_%28MCD%29>
Herlihy, S. M. (1999-2010), “The Disadvantages of Fast Foods”, viewed 10 july 2010, <http://www.ehow.com/about_5412103_disadvantages-fast-foods.html>
Reuters.com, n.d., “MCDONALD’S CORPORATION (MCD)”, viewed 10 july 2010, <http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=MCD>